How to Invest 20k: 6 Best Ways to Grow Your Money

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how to invest 20k

If you want to know how to invest 20k, I can help.

You don’t want to leave your cash in the bank, as inflation will slowly eat away at its value every year (by about 2%).

So today I’m going to show you the six best ways to invest 20k.

1. Invest in the Stock Market Through a Broker

Investing money in the stock market is one of the best ways to build wealth. And the more you have invested, the more you make.

Investing in the stock market through a broker is a popular way to invest in the stock market. 

You can buy stocks, bonds, ETFs, options, and futures through the stock market.

Investing with a broker is a great way to allocate your funds if you know what you’re doing.

But don’t forget that you must pay brokerage fees when investing through a traditional broker. These fees typically range from 0.5% to 2% depending on the broker.

If you’re looking for a great online stockbroker and you’re from the US I recommend Ally Invest.

Ally Invest is one of the largest brokers in the US, and charges a minimal $4.95 per trade, no matter what size.

Don’t worry if you don’t know anything about stocks. Because now I’m going to show you how to invest 20k in stocks as a newbie.

2. Invest with a Robo-Advisor

Investing 20k with a robo-advisor is a great way to gain exposure to the stock market as a newbie investor.

A robo-advisor is basically your personal portfolio manager—except it’s a software-based algorithm.

The robo-advisor will automatically pick your investments, diversify your funds, and adjust your portfolio over time. These changes are all based on your chosen long-term investment goals.

One of the most popular robo-advisors today is called Acorns and has over 3,500,000 users.

The platform has many investment strategies to choose from. They have strategies ranging from conservative to aggressive, depending on your investment goals.

3. Max Out Your Retirement Accounts

Another way to invest 20k is to max out your retirement accounts. Contributing to your IRA’s is a great idea if you’re happy to lock your money away until retirement.

You can withdraw from your 401(k) penalty-free after the age of 59 and 1/2, while the Roth IRA withdrawal rules are a bit more specific.

Investing through a broker or robo-advisor might be a better decision if you want to be able to access your funds at any time, without penalty.

Advantages of Maxing Out Your Retirement Accounts

There are two main advantages to maxing out your IRAs.

Firstly, you can contribute to your 401(k) with pretax dollars, this effectively reduces your taxable income for the year. 

You will have to pay taxes once you withdraw the money at retirement, but you can save money on taxes right now.

Secondly, employers will typically match your 401(k) contributions up to a certain dollar amount or percentage of your overall income.

Whatever the match is, it’s free money that you’ll be able to spend later.

Don’t leave money on the table, take advantage of employer matching.

4. Put Your Money in a High-Yield Savings Account

There are better ways to invest 20k than to put it in a savings account, but it does have its advantages.

Savings accounts are a great place to put your cash for a short period, enabling you to take it out quickly in the case of a financial emergency.

You’ll want to put your money in a high-yield saving account like those offered by CIT Bank—if you want to grow your money safely.

What Is a High-Yield Savings Account?

A high-yield savings account is a bank account that typically pays a higher interest rate than you’d expect with big banks like Bank of America.

High-yield savings accounts offer the same security benefits that you’d expect from a normal savings account.

The Federal Deposit Insurance Corporation (FDIC) secures the balance of accounts in banks or thrifts, and the National Credit Union Share Insurance Fund covers accounts at credit unions. 

High-yield savings accounts are a great way to store your money with minimal risk, while obtaining a modest interest rate.

How to Invest 20k in a Savings Account

The high-yield savings account that I recommend is CIT Bank. CIT Bank has some of the highest yielding savings accounts you can find, and you can sign up in just minutes.

5. Use a Peer-to-Peer Lending Platform

Another way to invest 20k is through a peer-to-peer lending platform.

Peer-to-peer lending, or P2P, is the practice of lending money to individuals or businesses through online services that will match you a borrower.

You can expect to attain a 3-7% annual return by becoming a lender on a peer-to-peer lending platform.

Peer-to-peer lending is a relatively new way to invest money, with Prosper first launching in the US in 2005. 

While peer-to-peer lending platforms do offer decent returns, they are not without their disadvantages.

Here are three major disadvantages to peer-to-peer lending:

  • Credit risk
  • There is no insurance or government protection
  • Peer-to-peer lending platforms may be illegal in your area

How to Invest 20k with Peer-to-Peer Lending

If you’d like to learn more about peer-to-peer lending visit here: Best Peer-To-Peer Lending Sites For Borrowers And Investors

6. Start a College Fund

Every parent wants their student to live a successful life, and one path to success is through college.

But the fact is that college is expensive, and is showing no sign of slowing down. Investing 20k in a college fund is a great way to invest in your children’s future.

The average cost for one year of college from 2015-2016 was $26,120, or $104,480 for four years. You could graduate with the same four-year degree in 1989 for $26,120!

If you want your kids to go to college and you don’t have the money ready now you should consider saving for their college education.

But what is the best way to save for college?

How to Invest 20k for College (the 529 College Savings Plan)

The 529 college savings plan is a great choice. 

This plan has high contribution rates (depending on your state) and lets your money grow tax-free. Almost every state has at least one 529 plan.

Also, the right 529 plan will give you the option to change the beneficiary to another family member.  So if your firstborn doesn’t want to go to college, you can use the funds for the next in line.

What Will Happen if I Invest 20k in Stocks?

Here is a graph showing what $20,000 would like while growing at average stock market returns (7% annually) over forty years.

I made this graph with a great compound interest calculator created by ASIC.

Investing 20k in stocks at age 25 would have grown to $299,489 (adjusted for inflation) by age 65. 

These gains can be achieved through index fund investing. This is the ultimate set and forget investment.

Summary

It’s also important that you remember to diversify your investments. $20,000 is a decent amount of money to invest, and you wouldn’t want to lose it!

If you’re successful, your 20k investment could be worth significantly more in a few years (as shown in the graph above).

Now that you know how to invest 20k maybe you’d be interested in learning a few ways to invest just $1,000.

If so, visit here: How to Invest 1000 Dollars (11 Best Ways in 2019)